Low corporate tax rates, high transparency in its tax regime, partial tax exemption and tax exemption schemes for new start-up companies make Singapore a start-up paradise and ideal for international business expansion. Home to some of the top companies in the world, located in the heart of Southeast Asia and its world-famous, award-winning international airport, businesses enjoy excellent connectivity and close proximity to large and emerging Asian markets.
Starting a business in Singapore? Links HR Outsourcing has created a company set up guide that includes the main employment laws, systems and best business practices in Singapore.
It is of fundamental importance for an employer to understand the tax obligations and taxation system where the business is. To help employers and HR leaders grasp the basics of taxation in Singapore, Links has put together some essentials of what you need to know about Singapore tax rates, corporate tax and income tax.
Tax Obligations as An Employer in Singapore
In addition to Singapore’s tax rates, employers must also understand their taxation responsibilities. Tax obligations of employers in Singapore include:
- Filing employee earnings
- Keeping business transaction records and accounts
- Filing Corporate Income tax
Filing Employee Earnings
Employers in Singapore are required by law to prepare certain tax return forms for their employees who are under employment in Singapore by 1 March each year. Hardcopies of tax returns are then to be submitted to the IRAS by the employee.
An employer must complete all relevant forms for all employees unless the company is under the Auto-Inclusion Scheme (AIS), in which the employer submits employees’ income information to the Inland Revenue Authority of Singapore electronically by 1 March each year, hence, AIS employers do not need to prepare a hardcopy of Form IR8A for their employees.
Keeping Business Records
Companies are required to keep proper records and accounts of business transactions; retaining the source documents, accounting records and schedules, bank statements and other transactional records. All accounting records and supporting documents must be retained for 5 years from the relevant Year of Assessment.
In Singapore, a Year of Assessment (YA) is the year in which income tax is calculated and charged. The period under assessment is normally the preceding financial year.
Corporate Income Tax Filing
The process of paying income tax in Singapore usually begins with the filing of the Estimated Chargeable Income (ECI). New companies are required to file the ECI within 3 months from the end of the company’s first financial year. In the case where the annual revenue does not exceed S$5 million in a financial year, and the ECI is nil, the company does not need to inform the IRAS and file its ECI.
New companies will receive their income tax return from the Inland Revenue Authority of Singapore, Form C-S or Form C, two years after the year of incorporation. Form C-S or C must be completed and filed with IRAS within the given timeframe to declare the company’s annual income.
Tax Obligation Relating to Central Provident Fund (CPF)
As part of Singapore’s social security system, the Central Provident Fund (CPF) is a mandatory saving scheme to provide for retirement life.
In addition to contributing a mandatory amount to an employee’s CPF account, an employer is required to withhold a portion of the employee’s salary as the employee’s contribution to his/her CPF account. The CPF contribution rates vary for employees of different age groups and the sector they work in. Employers hiring foreign workers do not have to pay CPF contributions for the employee, instead, a monthly levy known as Foreign Worker Levy (FWL).
Compulsory CPF contributions made by the employer are generally not taxable, however, voluntary CPF contributions made by the employer relating to employment are taxable.
Singapore Corporate Tax Rates
Effective from the Year of Assessment 2010, Singapore’s corporate income tax rate is at a flat rate of 17% on a company’s chargeable income regardless of tax-residency status.
Applying for Certificate of Residence (COR)
A Certificate of Residence (COR) is a letter certifying that a company is a tax resident of Singapore. Companies that are considered tax-resident in Singapore can claim several tax benefits over non-tax resident companies such as tax exemptions and lower withholding tax rates.
A company is eligible to be considered as a Singapore tax resident for a particular Year of Assessment if the business’ control and management were exercised in Singapore the previous calendar year. Decision making on business strategies and policies must be carried out in Singapore, for example, when a company holds their Board of Directors meetings in Singapore, where strategic matters of the business are decided.
Tax Relief for New Companies
IRAS has introduced several tax relief schemes for qualifying companies to support the growth of local enterprises, providing a solid foundation and much-needed support to Singapore’s start-up ecosystem.
From YA2020 onwards, under the Tax Exemption Scheme for New Start-Up Companies, qualifying tax resident companies can enjoy tax exemption for the first three consecutive YAs:
- 75% exemption on the first $100,000 of normal chargeable income; and
- A further 50% exemption on the next $100,000 of normal chargeable income.
- The maximum exemption for each YA is S$125,000.
To find out whether your company is qualified, please click here.
Tax relief measures help alleviate some of the key challenges faced by a majority of start-up companies relating to running on limited resources. Saving an extra bit of money from the tax exemption allows start-ups to move away from doing everything in-house, especially tedious administrative tasks such as payroll, and focus on value-adding activities that drive the business forward by outsourcing their HR administration.
Employees’ Income Tax in Singapore
As an employer, it is important, and only responsible, to understand and facilitate your employee’s tax obligations in addition to your own.
Income tax rates in Singapore depend on the employee’s tax residency status. Personal income tax rates in Singapore for tax residents are progressive. For non-resident taxpayers in Singapore, the income tax rate is at a flat rate of 15% or the progressive resident tax rates, they are charged whichever is the higher amount.
An employee will be regarded as a tax resident under these circumstances:
- He/She is a Singapore Citizen or Singapore Permanent Resident who resides in Singapore except for temporary absences; or
- He/She is a foreigner who has stayed or lived in Singapore for 183 days or more in the year before a particular YA (not applicable to the director of a company).
Otherwise, an employee will be treated as a non-resident of Singapore for tax purposes.
Chargeable Income = Assessable Income – Personal Reliefs
Assessable Income = Total Income – Approved Donations – Allowable Expenses
Singapore Income Tax Rates for Tax Residents
|S$0 – S$20,000||0%|
|S$20,001 – S$30,000||2%|
|S$30,001 – S$40,000||3.5%|
|S$40,001 – S$80,000||7%|
|S$80,001 – S$120,000||11.5%|
|S$120,001 – S$160,000||15%|
|S$160,001 – S$200,000||18%|
|S$200,001 – S$240,000||19%|
|S$240,001 – S$280,000||19.5%|
|S$280,001 – S$320,000||20%|
|S$320,001 and above||22%|
A resident taxpayer with a Chargeable Income of S$40,000
S$20,000 x 0% + S$10,000 x 2% + S$10,000 x 3.5% = S$550
Inland Revenue Authority of Singapore provides useful Tax Calculators for both individual income tax and corporate tax.
Want more HR support or need more advice on setting up a business in Singapore? Or looking for help with payroll and HR function for your new business? Get in touch with one of our representatives to see how we can help you elevate your HR function today.